What GM Can Learn From Toyota's Humility

Andy Grove, one of the founders of Intel, is famous for saying that "only the paranoid survive." The long-term success of his company suggests he's right.

These days, Toyota is looking like one of the most paranoid companies on the planet. It's the world's biggest carmaker but certainly isn't coasting. The global recession has hammered sales and profitability, with Toyota losing $8.4 billion in the fiscal year that ended in March. Sales are likely to be down 18 percent more this year, with a turnaround next year looking modest at best.

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That weak performance isn't surprising to anybody who has followed the woes of the U.S. auto industry. But here's something that is surprising: Toyota's CEO, Akio Toyoda, said at a recent news conference that his company is "grasping for salvation" and is deep in the grip of long-term decline. "Toyota has become too big and distant from its customers," Toyoda said grimly. Then he apologized for losing money and letting down the motoring public.

American car buyers have believed for a while that their homegrown automakers—especially the recently bankrupt Chrysler and General Motors—got too big and lost touch with their customers. But Toyota? Its products consistently rank near the top in quality and reliability. Sales in the United States are down about 29 percent so far this year, but that's roughly the same as the industry average; GM and Chrysler are down more, and BMW nearly as much.

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But Toyota is far more contrite than its rivals. Public apologies are traditional in Japan when a business loses its way, and for Toyota, losing billions in the Detroit tradition is a dramatic comedown. Besides, Toyota is very likely to get its act together, return to profitability, and continue its ascent. Projections by forecasting firm CSM Worldwide show Toyota gaining U.S. market share over the next several years and battling neck and neck with Ford and GM to be the top seller of cars. That would make Toyota the only foreign-based automaker ever to come close to the No. 1 spot in the world's biggest auto market.

Apologizing for missteps helps explain Toyota's success—and Detroit's decline. It's hard to imagine an American CEO apologizing for much of anything, and GM, Toyota's biggest rival, has done the opposite for years, hyping even the lamest products. GM famously predicted it would claim U.S. market share of 29 percent sometime in the early 21st century and reach earnings of $10 per share. Instead, its market share has dwindled to about 19 percent, and the company recorded historic losses before declaring bankruptcy. For 20 years, GM has maintained that eight divisions—five more than Toyota—was the right number, until it was on the verge of bankruptcy, when four divisions suddenly seemed like the right number. And, of course, former CEO Rick Wagoner insisted that bankruptcy would be ruinous, instead pleading for an open-ended lifeline from the federal government; four months after declaring bankruptcy, GM seems to be doing OK.

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GM has received about $51 billion in taxpayer aid, and it's unlikely that the company will be able to repay all of it. Yet there have been no apologies for the colossal destruction of shareholder wealth or the dependence on public funds. Sure, there's a certain theatricality to a public apology, which is no substitute for a sound business strategy. But humility at least shows you're aware of the problem and taking responsibility for it.

GM, by contrast, has been as jaunty and proud as ever since its quick emergence from bankruptcy. The company is right that its products are improving, but there's still too much hype coming from Detroit. There was a big flourish when GM rolled out its program to sell cars on eBay this summer, an effort that has quietly ended with no significant sales. GM is touting the forthcoming Chevy Volt as a wundercar that will get more than 100 miles per gallon, yet there are questions about cost, practicality, and reliability. GM still seems to believe it can convince skeptics if its executives are insistent enough. Less bravado, and even some paranoia, might work better.